The Bank of Canada will hike its key interest rate by another 50 basis points to 4.25% on Dec. 7, according to a slim majority of economists in a Reuters poll that suggests the central bank will then hit pause on a nine-month tightening campaign.
An economy that grew at a solid annualized 2.9% rate in the third quarter is increasingly at risk from a falling property market and one of the highest household debt-to-income ratios in the world, with the full effect of rate rises yet to be felt.That has left economists and markets at odds over whether the BoC, which has raised rates by 350 basis points since March, will opt for another half-point move and aim to wind up an aggressive campaign before an expected recession sets in.
"The rise in inventory ratios and weakness in domestic demand should be a signpost of weaker domestically-driven inflationary pressures in the future," said Andrew Grantham, senior economist at CIBC. Of the large Canadian banks, Scotiabank, CIBC and National Bank expected a 50 basis point move with no further hikes afterward. RBC forecasts a 25 basis point hike and then a pause, while BMO expects 50 and then another 25 in early 2023.Reuters survey
Although there was no clear consensus on when the overnight rate would peak, around 90% of respondents, or 26 of 29, predicted a terminal rate of 4.25% or higher, suggesting the BoC may be done in December and if not, soon afterward.
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